New Forms of Enterprise Point to Further Evolution of the Corporate Structure

MURRAY WEIDENBAUM is director of the Center for the Study of American Business at Washington University in St. Louis

In the process of adjusting to the pressures of an increasingly global marketplace, the domestically oriented corporation is often transformed into an organization that we can call the transnational enterprise. The pace-setting firms often take on many of the characteristics of an open and interactive network, selectively sharing control, technology and markets with different kinds of organizations in many parts of the world.

Pushed by rapid changes in technology, the traditional boundaries between formal enterprises and more informal business relationships are gradually blurring. When mass production of goods was the predominant activity of most companies, the role of the producer was sharply distinct from that of the consumer. In knowledge-intensive activities, however, the distinction between maker and user is neither as clear-cut nor as invariant.

The pyramid organization facilitated the efficient division of labor for producing large quantities of standardized products. With a more rapid rate of technological change, the life spans of individual products are shortened.

The multinational enterprise can follow two strategies. In some industries, there is a trend toward globalization. With converging buyer preferences and uniform worldwide technical standards, it is possible to produce a narrow range of standardized products from globally oriented factories. In such an environment there is a premium on efficiency and a preference for internal control unhampered by the divergent preferences of corporate partners.

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In other industries, numerous factors--strong local customer preferences, varying technical standards among countries, transportation and trade barriers, economic nationalism and high technological risks--point to a more diverse strategy, including alliances with enterprises located in a variety of regions.

Notwithstanding the myriad of individual variations, it is helpful to try to generalize the nature of the corporate transition taking place.

The first phase views overseas operations as appendages of a centrally directed, domestic corporation. The headquarters organization exercises strong financial control, although some assets and decisions are decentralized.

In the second phase, the enterprise adopts a multinational form of organization. Management comes to view overseas operations as a portfolio of autonomous businesses. Many responsibilities are decentralized, but financial controls continue to provide the key linkage.

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In the third phase, the company begins to develop a global organizational structure for a unified, worldwide business. Centralized control is maintained over key resources and information, but such a worldwide operation will find it increasingly difficult to direct operations from any one location, no matter how good its research or how much its executives travel.

Thus, many business analysts believe that companies will be led to the fourth and most futuristic organizational model: the transnational organization. Resources, people and information will flow among interdependent units. In the absence of central control, this structure will rely on the good will of the many participants. A complex process of coordination, cooperation and shared decision-making will be involved.

The emerging transnational enterprise will likely be recognizable by two interrelated characteristics: (1) ability to attract employees, capital and suppliers from global sources and (2) appeal to customers all over the world.

The advantage may no longer go to firms that concentrate on building a single strategic asset such as the lowest-cost factory or the most innovative R&D; laboratory. Attention will be focused instead on creating a strong internal corporate culture.

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Under such circumstances, building an organizational capability that allows corporate executives to manage diversity and change will be of prime importance.

The successful organization of the next century will need to adapt rapidly to changes in its markets and operational environment. It will be forced to engage in continuous experimentation. The executive of the international economy increasingly will have to learn to live with complexity and ambiguity.